Dividend Cuts
A Prudent Measure?

It has been a challenging time for UK dividends. In the second quarter of the year, they experienced their biggest quarterly fall on record, declining by 57% (over £22bn). At least 30 companies reduced their dividends, with a further 176 cancelling them entirely.

Despite this, several fund managers regard these measures as a prudent move, as businesses take action to preserve their capital expenditure:

Martin Cholwill, Royal London – “In ordinary times, a dividend cut is a sign of failure. In these exceptional circumstances, however, it reflects sensible short-term capital allocation.”

Richard Colwell, Columbia Threadneedle – “The pandemic has resulted in a great deal of uncertainty for all businesses. Even those whose trading has been unaffected, have still faced issues with supply chains and distribution networks. So, reducing capital expenditures like dividends is prudent. There have been some big cuts but what is key is what happens over the longer term. Dividends will be back, but for now, balance sheets and liquidity are paramount.”

Carl Stick, Rathbone Unit Trust Management – “The rebasing of dividends across the UK stock market is an opportunity for companies to reallocate capital more sensibly.”

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The above article is purely for information purposes and does not constitute advice.

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